Operators decry losses from non-passage of PIB

Operators of the Nigerian oil and gas industry are counting their losses arising from the non-passage of the Petroleum Industry Bill (PIB), which has been before the National Assembly for over a decade.

The non-passage and its consequences, according to them, include uncertainties over investment in exploration and production, which boosts oil output and reserves as well as funding of operations.

The bill has been undergoing changes from one legislative assembly to another as a result of disagreements between stakeholders over fiscal and structural provisions in the bill. The development led to abandonment of decisions in taking risks to make new discoveries, developing existing acreages and injecting new technologies, therefore, activities have been very low in the industry over the years.

The lingering bill has created uncertainty that has continued to hang on the business environment, compelling foreign and local investors to cancel or delay business decisions that would have kept activities in the industry alive and growing.

The Managing Director of Seplat Petroleum Development Company, Mr. Austin Avuru said: “There are too many contending issues that are lumped into one piece of legislation including issues that were never in dispute; including issues that we didn’t need to revisit. And in the process they have thrown the industry into an impasse; you can’t move forward because everybody, especially the multinationals operating in the deep offshore and who have to make multibillion dollar investments, are in an uncertain business climate. Clearly they have pulled back their pen and they are not taking final investment decision (FID).

“What is stopping the industry from moving forward is the uncertainty created by the possibility of a new legislation that is not clearly understood. And, therefore, you can’t take the risk of making heavy investments because you can’t be certain until that piece of legislation becomes law. And so, as long as there is suspense, there will be a lull. The entire industry is in suspense. Every month, you hear about dwindling revenues in the federation account. Yes, it will continue,” he pointed out.

On the whole, he said: “our survey of oil industry challenges in the wake of the oil price fall exposed crippling challenges that are eroding profitability.”

Avuru also said: “Across the industry, cost has gone up 10 fold from where we were 25 years ago. As a young well-site geologist in the 1980s, and if you recall those terms of the 1985 and 1987 memoranda of understanding (MoUs) nominal technical cost was pegged at $3.50 per barrel. It was expected that average technical cost (operating expenditure and capital expenditure) was $3.50 per barrel. That means you have to be operating below $3.50 to be efficient. If you are doing above $3.50 you are considered expensive.

“Today, that cost has gone up to $30.50 per barrel. So, in the past 30 years, we have allowed a lot of things to creep in. There is the crisis in the Niger Delta; increase in the security apparatus to do the business, there is an increase in everything. All the costs have piled up onto the cost of production.

“And one of the biggest issues, why there appears to be a disagreement between government and operators over the PIB is because government believes that the fiscal regime cannot be predicated on $35 per barrel. And you can understand their frustration. They were there when the cost was $3.50 per barrel.

“But the industry is saying the cost is the cost. If it is $35 per barrel then it is $35 per barrel. People don’t realise that this is where the disagreement resides. The debate is on the cost parameters used to model the fiscal regime. So, the industry has undergone a huge escalation in cost. Unfortunately, nobody has tried to stem that tide because it has escalated beyond control.”

However, beyond the arguments is the fact that the domestic operating environment appears to be losing the necessary conditions required for commercial investments to make appreciable returns and deliver profits to shareholders.

The minister of petroleum was right all along when she said the PIB was critical to the future of the petroleum industry, but alas her comrades in NASS seemed more concerned with political one-upmanship than the future of Nigeria.

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